Judge Lawrence Kahn
The Dataflow plaintiffs held an insurance policy from Peerless covering employee dishonesty, including embezzlement. Their accounting manager misappropriated $1.2 million between 2005 and 2010, and later pleaded guilty to felony grand larceny and forgery. Plaintiffs disputed Peerless’s assertion that it would cover only $75,000 of plaintiffs’ losses. During discovery Peerless claimed certain internal emails were unavailable due to a “system change” after May 19, 2010. Emails not marked for preservation were deleted. District court approved a magistrate judge’s June 6, 2013, recommendation that plaintiffs be granted sanctions for spoliation. The court found the magistrate properly concluded that an adverse inference instruction was warranted due to Peerless’s gross negligence in breaching its internal policy to retain, for six years, all business records related to a claim made under a commercial property policy. The court noted that the emails were at least potentially relevant to the viability of Peerless’s defenses, including plaintiffs’ failure to cooperate. However, district court declined to adopt the magistrate’s recommendation as to the language of the adverse inference instruction until the parties submitted proposed jury instructions prior to trial.
